Hero or Villain? Romney Under The Microscope At Bain Capital

Mitt Romney has been depicted as a blood-sucking, Wall Street Vampire. If only that were the simple truth. Having an iniquitous personality would be better than the public persona he exudes right now. It would add a certain cache to his otherwise soporific blandwagon of a campaign.

Newt Gingrich represents the anti-Romney persecution with a 28 minute political ad entitled “When Mitt Romney Came to Town.” The ad could be a Michael Moore “documentary” about E-VIL, Greeeee-dy, Rethuglicans snorting fine, Columbian Cocaine off the succulent rear-end of a hooker through rolled up $100 bills. Cicero was more fair and balanced in his indictments during The Cataline Conspiracy.

Candidate Romney has predictably fired back with an ad that portrays Bain Capital as pretty much the good guys from The Lord of The Rings. His ad “Bright Future” paints Romney as a creator of wealth and jobs. It shows the names of hugely successful businesses that presumably would still be vending their wares out of pushcarts or bucket shops without the Benevolent Mittman. Like much we see in the heated skirmishes of a Presidential Primary, neither view of Bain Capital seems exactly steeped in the light of justice and truth.

I’m not sold by either Mitt Romney or his opposition. I’ve tried to blog about this issue from the standpoint of a guy who just wants the fulsome, soiled laundry out of the gym bag so that it can be aired. Let’s settle this puppy in house, before David Axelrod tells America what to believe about this during next Fall’s Presidential Election. It would help to get some perspective on this not driven by Romney’s minions or detractors. Perhaps Fortune Magazine offers exactly that in a feature blog entitles “Fact or Fiction? Romney’s Private Equity Past.”

Dan Primack, author of the Fortune Blog issues a statement outlining his purpose. “Mitt Romney is running for president as a “job creator,” based on his time as a venture capitalist and private equity investor at Bain Capital. Some of his rivals are beginning to accuse Romney of being more of a job destroyer, citing some of Bain’s more troubled investments.”

”So we’ve decided to keep track of who is saying what about Romney’s tenure at Bain, and about private equity in the context of presidential politics. More importantly, we’re going to tell you if the statements are true, sort of true or false.”

He speaks out on several recent depictions of Romney’s role at Bain Capital. He begins with “When Mitt Romney Came To Town”. “Winning Our Future, a political action committee supporting Newt Gingrich, today released a 28-minute video titled ‘When Mitt Romney Came to Town.’ It focuses on the failures of four companies formerly owned by Bain Capital, and is so chock full of errors that it deserves its own post.”

His post goes on to say:
A) Unimac’s Florida plant was not closed until after Bain had sold Unimac to a different entity. He goes on to point out that Romney had stopped being a decision-making principal at Bain Capital five years prior to Bain’s sale of the asset and six years prior to Unimac’s plant closing.
B) KB Toys was purchased one year after Romney left Bin in 1999.
C) DDI Corporation was acquired under Romney’s watch. Romney and Bain acquired DDI in 1996, left the company in 1999. DDI Corp ran into trouble in 2000. However, contra-Primack, Romney isn’t completely in the clear because a 13D form suggests Romney was still involved in DDI as late as 2000. (Although not as a member of the Bain Board). So I’m not as willing as Mr. Primack to completely absolve Mitt on DDI as Primack does later in the post.

Primack does not, however, paint a completely rosy picture of Romney’s activities at Bain. Primack takes issue with National Review Online for stating “Bain is involved in, among other things, leveraged buyouts, meaning that the firm and its investors borrow money from banks to acquire companies, usually firms that are in trouble but believed to be salvageable.”

Primack notes factual discrepancies and omissions in the National Review Online Article. Primack points out the PE firms often arrange the finance so that they aren’t 100% on the hook if the deal goes Ka-Bloom! I take no great moral umbrage to them managing risk to avoid blowing themselves up. However, it is somewhat self-serving to claim Bain took on more actual risk than it really did. It sort of reminds me of a soldier that embellishes his old war stories a bit to look more heroic in front of the ladies.

Primack further delves into this risk management issue and indicts National Review for not properly describing how Bain Capital took dividends out of money that they sometimes forced firms to borrow. This is a major and significant failure on the part of National Review Online.

It also is worth noting that National Review completely ignored the issue of dividend recaps, which is the real issue that keeps getting glossed over because it doesn’t fit into a 30-second soundbite. Dividend recaps are when a private equity firm raises even more debt for an existing portfolio company, and then takes a dividend out of the debt proceeds (rather than from profits). That is how a private equity firm can profit on an investment whether the company later thrives or fails (although, typically, dividend recaps alone do not generate the type of returns that PE firms promise their investors).

This issue needs to get aired out. If I were cursed by the gods with being Debbie Wasserman-Schultz for a fun-filled evening of barking at the moon and chasing parked cars, that’s the one I’d demagogue to the hilt. I’d talk about Romney eating these companies’ seed-corn like it was a box full of Cracker Jacks.

Primack astutely and correctly points out: “Sometimes, however, such companies later fail and cite their heavy leverage load as a contributing factor. That is why Romney and Bain Capital are sometimes accused of profiting from bankrupting companies, even though that’s really some sloppy shorthand for what actually happens.” Believe you me, the Democrats running ads this Fall would cite heavy leverage load as a reason for these companies going under and tell you the personal life history of every line worker who was ever fired.

Primack’s entire blog is long, detailed and well-researched. If you actually care about what happened when Mitt Romney came to town, Primack gives us about as good and as fair-minded a view of it as anyone else I’ve seen out there. No, Mitt’s still not charismatic enough to be Dracula. However, he’s not clear of Bain Capital by a long shot. The GOP voting public can and should demand of him more answers.